The 6-1 council vote came with Mayor Glen Robertson's opposition, with the mayor recommending the increase not take effect until Oct. 1.

"Historically, LP&L always makes its money during three months - June, July and August - when temperatures are hot," Robertson said.

After rejecting three requests for rate increases in the past two years, the council vote Thursday, May 9, to approve LP&L's request came after Gail Kring, Lubbock Electric Utility Board chairman, said he was concerned delaying the increase could cost taxpayer-owners of the municipally owned utility.

"We just think it's right to righten the ship at LP&L," Kring said. "We cannot continue on this path."

The increase is projected to raise approximately $17.4 million in additional revenue, according to LP&L.

The increased revenue is about $300,000 shy of the $17.7 million deficit projected for the municipal power company in the fiscal year ending Sept. 30.

LP&L reported a $3.2 million loss last year, stemming in part from increased pass-through energy costs from Xcel Energy, which provides electricity to LP&L as part of a purchase-power agreement ending in 2019.

"To me, this is a no-brainer," Councilman Floyd Price said in supporting the rate increase.

Kring cited a recent report from Moody's Investor Service maintaining LP&L's A1 bond rating but issuing a negative outlook concerning the utility's Electric Light and Power System Revenue Refunding and Improvements bonds.

A downgraded bond rating could cost taxpayers through increased interest rates on bonds, and a rate increase would improve the utility's standing with Moody's, Kring said.

Moody's explained the change in LP&L's outlook from stable to negative in a statement April 30.

"The change of the rating outlook to negative from stable reflects the system's trend of weakened financial performance as reflected in declining debt service coverage and unrestricted reserve levels over the past two fiscal years," according to the statement. "This negative outlook incorporates the expectation that unrestricted reserves will decline further in fiscal 2013 and also reflects the system's increasing total debt service costs."

The statement adds: "Future reviews will focus on the system's ability to adjust rates to ensure financial metrics are maintained at adequate levels commensurate with the current rating category."

A rate model study conducted by J. Stowe and Co. this spring estimated LP&L could see a $17.7 million deficit for fiscal year 2013 without a rate increase, said LP&L spokesman Chris Sims.

The Utility Board recommended the new rate structure during its April 30 meeting.

Robertson said he was not eager to raise utility rates, but believes an increase was inevitable as LP&L faces a second-straight year of projected multimillion-dollar deficits.

Robertson noted the rate study recommended this year's rate hike as part of a multi-phase increase in rates.

The study recommended a 7.3 percent increase in 2014, a 6.2 percent increase in 2015, a 1.1 percent increase in 2016 and a 1.2 percent increase in 2017.

A rate increase was necessary sooner than October as LP&L dips below its required reserve, Councilwoman Karen Gibson said.

By the end of March, LP&L had about $43 million in cash in its unrestricted reserve funds, about $5 million shy of the $48 million LP&L is required by City Charter to maintain in case of emergencies, Robertson said.

"We're not to the critical stage yet," he said earlier this week. "That's what we've got reserves for, to take care of expenses when we go through the slow winter months where we've had a lot of cold fronts come through."

The board capped the rates at a maximum 20 percent increase for all rate classes, with rates for houses of worship and large municipal customers recommended to increase at the maximum rate. The standard residential rate would increase by 9.7 percent while small businesses would see a 3.7 percent rate decrease.

Robertson said the variance in rate changes aims to spread the increasing cost of service among rate classes.

"We don't want any single rate class subsidizing the others," he said at the time.

LP&L's study comes after years of LP&L following Xcel Energy's lead on setting rates, said Sims. Xcel provides power to LP&L and West Texas Municipal Power Agency cities as part of a purchase-power agreement, ending in 2019.

LP&L opted to pursue a rate study after the City Council twice last summer and once in 2011 rejected Utility Board requests to increase LP&L rates about 7 percent to match an Xcel Energy increase.

At the time, Robertson and council members told the board the council would not approve a rate increase without better data from the utility, which forecast a 2012 deficit up to $9.8 million before revenue from a hot summer shored up much of the red ink.

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